Hertler Market Signal Update
#706 October 4, 2015
Most indicators are bullish, except bearish Smart Money Index
The Smart Money Index has turned bullish, rising above both moving averages. The 50-DMA crossed above the 200-DMA. That is bearish because of the current inverse relationship with stock prices. The SMI seems to be suggesting a long-term bearish trend for stocks. But there is certainly room for rally.
The late market component (LMC) of the Smart Money Index climbed to resistance at the 200-day moving average again. Further upside progress would be bearish for stocks if the inverse relationship continues.
The EMC (early market component of the SMI) made a new low. Although in theory the EMC is supposed to represent the dumb money – the emotional traders – it is apparent that the EMC correlates very well with the S&P 500. But, below both moving averages, the EMC is in a bearish position. Short term, the bearishness of the dumb money and the bullishness of the smart money combines to generate a very strong SMI (which is bearish).
Barron’s Confidence Index dropped below the 50-week moving average. Crossing below that MA is bearish.
The small cap/DJIA ratio is falling, which is bearish.
The ratio of the NASDAQ Composite to the S&P 500 fell from its new high right along with the NASDAQ. Until the ratio shows evidence of a new long term down-trend, it is considered to still be bullish.
The AAII Member Bullish Oscillator is near zero and neutral.
The Citigroup Panic/Euphoria Model (from Barron’s) plunged to -0.46 approaching the extreme low at the end of the 2007-2009 bear market. Note the remarkable symmetry in the way up from 2011 to the clear reversal at the top and the round trip down. When the Model is deep in the panic area it has been eventually bullish for stocks.
The Fear Index remains at its highest level in a few years, but it is well below the levels seen at some earlier market declines.
The Interday Volatility Index spiked over 2. These spikes are followed soon with market lows.
The Intraday Volatility Index also spiked in a bullish fashion.
The Smart Money Index is bearish.
Barron’s Confidence Index has turned bearish.
The Citigroup Model is very bullish.
The relative strength of the small caps is bearish.
The Fear Index is bullish.
The Volatility Indexes are bullish.
In summary, while the SMI seems long term bearish, several other indicators are quite bullish at least for the short/intermediate term.